The devastating impact of the Coronavirus (COVID-19) needs no introduction.  BCLP has consolidated all of its client alerts regarding Coronavirus (COVID-19) as one page of resources. On that page, you can also limit by topic area, jurisdiction and areas of practice.

In this post, we have highlighted some of the client alerts that we believe may be of specific importance to our community bank clients.

Back to Work: Georgia’s Reopening Executive Order – Risks and Guidance for Businesses

On April 20, 2020, Governor Brian Kemp signed an Executive Order which initiates the process of reopening businesses within the State of Georgia on April 24, 2020, and issued a subsequent Executive Order on April 23, 2020, providing further guidance on the process for reopening (collectively the “Orders”). These Orders, which are quite limited in scope, only grant a small subset of businesses permission to reopen. They do, however, pre-empt all local and city orders that are more or less restrictive than the state-wide Orders. 

The Orders, while limited, nevertheless shed light on what the process of reopening will look like for additional business sectors going forward. All companies with locations in Georgia would be wise to invest time planning how they may implement screening, sanitation, and social distancing at their workplace to allow for a timely, safe and compliant reopening. 

This alert examines what businesses are permitted to reopen, what restrictions exist for those businesses, and advice and guidance for companies that BCLP anticipates will be affected by similar reopening orders in the future.

As the FFCRA Goes Live, the DOL Continues to Publish Revised and New Guidance for Employers

Although the federal Department of Labor (“DOL”) declared April 1 – 17 to be a temporary period of non-enforcement of the Families First Coronavirus Response Act (“FFCRA”), the DOL was far from idle during that period. Importantly, the DOL provided key revised and new guidance for employers by: (1) issuing technical corrections to the temporary rule; and (2) posting additional informal questions and answers. The new guidance provides much-needed clarity on key issues, especially since the period of non-enforcement is now over. This post examines the new guidance and provides advice for employers to comply with the provisions of the FFCRA.

The devastating impact of the Coronavirus (COVID-19) needs no introduction.  BCLP has consolidated all of its client alerts regarding Coronavirus (COVID-19) as one page of resources. On that page, you can also limit by topic area, jurisdiction and areas of practice.

In this post, we have highlighted some of the client alerts that we believe may be of specific importance to our community bank clients.

Emergency Leave-Sharing Plans for U.S. Employers

In addition to the paid sick leave and family leave U.S. employers must provide under the Families First Coronavirus Response Act, some employers are seeking additional ways to support employees affected by COVID-19. This alert reviews IRS guidance and details how employers can implement an emergency leave-sharing plan in response to the crisis.

Unraveling U.S. Retirement Savings – How a Global Pandemic Threatens to Undo Decades of Planning

With the economy in a free-fall and the U.S. government scrambling to create a financial safety net for citizens, giving access to tax-qualified retirement savings was a natural piece of Congress’ plan to loosen the grip on needed funds. Implementing a thoughtful, needs-based, COVID-19 withdrawal/loan policy could protect employees’ financial security for decades to come. This alert covers the options available to plan sponsors to combat the economic impact of COVID-19.

The SEC recently published final rules that allow publicly traded bank holding companies and banks to simplify their public disclosures and provide more meaningful information to investors. Most of the rules become effective on May 2, 2019, which allow many registrants to benefit from them on their Form 10-Q filings for the quarter ended March 31, 2019.

This post is intended to highlight those changes that we expect to be most significant to registrants in the banking industry. BCLP has also produced a more thorough summary of the final rules as applicable to all registrants. The complete, 252-page adopting release is available here.

MD&A

Most registrants provide three years of MD&A narrative.  The new rule allows such registrants to omit discussion of the earliest of the three years if such discussion was previously filed, so that the 10-K MD&A will address only the year being reported and the previous year.  Smaller reporting companies are only required to provide two years of financials and MD&A (and emerging growth companies are allowed to omit periods prior to their IPO), so these registrants will not see any benefit from this change.

The revisions to the MD&A requirements also eliminate the requirement that issuers provide a year-to-year comparison.  In the related commentary in the adopting release, the SEC characterizes this change as providing registrants flexibility to tailor their presentation.  Hopefully, over time, the SEC’s expressed purpose will encourage creative approaches to this area. 

Exhibits – Material Contracts

Previously, a two year “lookback” applied, such that material contracts entered into in the two years prior to the filing were required to be disclosed on the exhibit index even if the contracts had been fully performed.  A common example is merger agreements—companies are currently required to continue to file merger agreements as exhibits even after closing.  The new rule eliminates this requirement (other than for newly public companies), such that material contracts that have been fully performed are no longer required to be disclosed.

The Securities and Exchange Commission amended its definition of “smaller reporting company” (an “SRC”) increasing the public float threshold (cap on portion of shares held by public investors) to $250 million, up from the prior $75 million threshold.  Companies with a public float of up to $700 million may also qualify for SRC status under the new rule if their annual revenues are less than $100 million.

Benefits of SRC Status

The less rigorous reporting requirements for SRC’s provide a number of benefits to qualifying companies.  The Independent Community Bankers of America estimates that SRC status—thus exemption from the 404(b) reporting requirements—could cut audit fees for qualifying bank holding companies by as much as 50%.   Included in the lesser filing requirements for SRCs are the following scaled disclosure accommodations:

• Audited historical financial statement filing requirements are reduced to two years (rather than three for larger reporting companies)
• Less rigorous disclosure for annual and quarterly reports, proxy statements and registration statements
• Two years of income statements (rather than three)
• Two years of changes in stockholders’ equity (rather than three)
• Reduced compensation disclosures
• No stock performance graph required
• Not required to make quantitative and qualitative disclosures about market risk

Methods of Calculation

A company’s public float, the total market value of the company’s outstanding common stock (voting and non-voting) held by non-affiliates or non-insiders, is the amount reflected on the first page of the company’s 10-K as the “aggregate market value of the common stock held by nonaffiliates of the registrant.”   The public float is measured as of June 30th each year.

To calculate “annual revenues” for the $100 million SRC limit, a financial institution must calculate its gross revenues earned from traditional banking activities.

Interest income

+ non-interest income

– gains and losses on securities

= annual revenues

The calculation of annual revenues is from the most recent 12 months for which audited financials are available.  We have no reason to believe based on the issuance of this new rule that the SEC will change the calculation of annual revenues for financial institutions.

On August 5, 2015, in a 3-2 vote, the SEC adopted the rule implementing the controversial pay ratio requirement pursuant to the Dodd-Frank Act. The rule requires companies to disclose:

• the median of the annual total compensation of all employees, excluding the principal executive officer, or CEO;
• the annual total compensation of the CEO (which is already required to be disclosed); and
• the ratio of  these two amounts.

The new rule applies to companies required to provide executive compensation disclosure under Item 402(c)(2)(x) of Regulation S-K in proxy statements or annual reports on Form 10-K, as well as registration statements or other filings. Most companies are required to report the pay ratio disclosure for their first fiscal year beginning on or after January 1, 2017.

View Bryan Cave’s Client Alert on the Pay Ratio Rule.

As part of its continuing but slow expansion of the types of financial institutions that are subject to anti-money laundering (AML) obligations under the Bank Secrecy Act and USA PATRIOT Act, FinCEN proposed on August 25, 2015, to require certain investment advisers to establish and maintain AML programs and file suspicious activity reports (the Proposed Rules).  The Proposed Rules go further than FinCEN’s 2002 and 2003 proposals for investment advisors, which generally were limited to proposing AML program requirements only, without additional suspicious activity reporting and certain other record keeping requirements.

In explaining its rationale for the Proposed Rules, FinCEN acknowledges that advisers work with financial institutions that are already subject to BSA requirements, such as when executing trades through broker-dealers to purchase or sell client securities, or when directing custodial banks to transfer assets.  FinCEN notes, however, that these institutions may not have sufficient information to assess suspicious activity or money laundering, and that investment advisers therefore have an important role to play in safeguarding the financial system from terrorist activities and financial crime.

General Scope and Examination Authority

Under the Proposed Rules, covered investment advisers would include any persons who are registered or required to be registered with the SEC under section 203 of the Investment Advisers Act.  This would include both primary advisers and subadvisers.  However, because advisers with less than $100 million in regulatory assets under management are generally prohibited from registering with the SEC, those advisers would not be subject to the Proposed Rules.

Have you thought about offering your customers wealth management services? The fee opportunities are attractive and the regulatory issues are more manageable than you might think.

Why should a bank’s board directors consider entering the wealth management business? For one, several of your competitors are already doing so. Wells Fargo already employs over 15,000 financial advisors and is looking to serve an even broader swath of the mass market than it already does. And, according to the American Banker, approximately 25% of all banks plan to offer wealth management services by the end of 2016, according to a survey conducted by that publication. If that survey data is representative across the banking industry, your board would not be in the leading edge if you are not considering the risks and rewards of building or acquiring a wealth management division.

This article assumes that U.S. community banks are not looking to compete directly with the largest private banks in advising billionaires on anything from buying a private jet to investments in complex derivatives. Instead, most community banks will offer basic wealth management services, including administering retirement assets held in 401(k) plans and IRAs, advice in setting up educational and health savings plans and perhaps basic trust services to assist in administering family trusts. Other service offerings, such as insurance, securities custody, securities lending, securities clearing and settlement, are sometimes considered part of wealth management or trust services, but this article does not discuss those other services because they are generally not a good fit for community banks, at least in the early stages of launching a wealth management division. Basic wealth management services are, at least in theory, a natural complement to the business of offering deposit services and loans to wealthier bank customers.

The SEC recently adopted new rules to lift the ban on general solicitations and general advertising for Rule 506 private placements and Rule 144A offerings. In addition, the SEC also adopted rules disqualifying “bad actors” from taking advantage of the Rule 506 private placement safe harbor. These new rules will be effective on September 23, 2013. The SEC has further proposed new rules that, among other things, require an SEC filing at the start of Rule 506 placements involving general solicitation, the inclusion of additional cautionary legends and disclosures in offering materials as well as a temporary (two-year) requirement to file general solicitation materials with the SEC.

Regulation D’s Rule 506 provides a safe harbor exemption from registration under the Securities Act of 1933 for private offerings made to accredited investors and no more than 35 non-accredited investors who meet certain investment sophistication requirements. The SEC estimates that Rule 506 offerings account for more than 90% of all Regulation D safe harbor private offerings and substantially all of the capital raised under Regulation D. Prior to these new rules, an offering would not satisfy the Rule 506 safe harbor exemption if any general solicitation or general advertising occurred. General solicitation and advertising includes advertisements published in magazines and newspapers or broadcast by television or radio or made available through unrestricted websites. Widely disseminating offering materials absent pre-existing relationships with investors may even be deemed a general solicitation.

General Solicitation Ban Removed

As mandated by the JOBS Act (to be completed by July of last year), the SEC is adding new Section 506(c) to permit general solicitation and advertising to offer and sell securities in a Rule 506 offering if (a) all purchasers are accredited investors or the issuer reasonably believes that they are accredited investors, and (b) the issuer takes reasonable steps to verify that all purchasers are accredited investors.

While any relief still has a long (and uncertain) path before it would be effective, on October 26, 2011, the House Financial Services Committee approved four bills (with bipartisan support) that would remove regulatory federal securities law obstacles to capital formation.

H.R. 1965 would, for banks and bank holding companies, raise the SEC registration threshold to 2,000 shareholders and the deregistration threshold to 1,200 shareholders.

H.R. 2167, the “Private Company Flexibility and Growth Act,” would raise the SEC registration threshold for all companies to 1,000 shareholders and would exclude accredited investors and certain employees from the definition of “held of record” for registration purposes.

H.R. 2940, the “Access to Capital for Job Creators Act,” would permit general solicitation and general advertising for private offerings conducted under Rule 506, so long as all purchasers were accredited investors.

House Passes Government Funding Bill, Shutdown Looms Again

The fiscal year Continuing Resolution (CR) that funds the government in lieu of Appropriations bills expires on September 30^th. Therefore, Congress is required to pass another funding resolution by October 1st in order to prevent a government shutdown. The House passed its CR late Thursday night after cutting an additional $100M from the Department of Energy program that backed the Solyndra loan. The House bill contains $3.65B in disaster relief, which is partially offset by a $1.5B cut to a Department of Energy loan program for manufacturers of fuel-efficient cars. On Friday, the Senate voted to reject the House’s bill by a vote of 59 to 36 because Senate Democrat leaders are seeking greater disaster relief funding. The most likely outcome is for the House and Senate to pass a “clean” CR that funds the government until November 18 and postpones the debate over increasing disaster funding. While Congress is scheduled to be in recess next week, the House and Senate must reach an agreement on a funding resolution before recessing.

Former SEC General Counsel Testifies About Madoff Ties

On Thursday, David Becker, the former general counsel of the Securities and Exchange Commission (SEC), testified before two Congressional panels regarding a report released this week by the SEC’s inspector general that referred Becker’s actions to the Justice Department for an investigation of possible violations of conflict-of-interest laws. Prior to Becker’s appearance before the committees, SEC Chairman Mary Schapiro and SEC Inspector General David Kotz also testified about their knowledge of the Becker matter. While Becker testified that he told numerous SEC officials about his financial connection to Madoff accounts, Schapiro told the Committee that she did not inform the other four SEC commissioners because Becker was cleared by the SEC’s ethics office. It is unclear if the Justice Department’s investigation will lead to any charges against Becker, but the SEC is already adopting several changes based on the inspector general’s report, including redirecting the top ethics officer to report directly to the chairman of the commission, rather than the general counsel.

House Subcommittee Passes First Postal Reform Bill

On Wednesday, the House Government Reform Oversight Subcommittee passed legislation to overhaul the U.S. Postal Service (USPS). The bill, sponsored by Rep. Darrell Issa, R-Calif., Chairman of the House Oversight and Government Reform Committee, would allow USPS to drop a delivery day and adjust labor costs. However, Rep. Dennis Ross, R-Fla., who chairs the House Oversight Subcommittee responsible for postal issues, introduced and passed a substitute amendment to the bill that also would cut back door-to-door delivery and reduce the postal workforce starting with retirement-eligible employees before laying off other staff. The bill now heads to the full Committee for consideration.